# Is this rental property worth it?

Computes the monthly cash flow, cap rate, cash-on-cash return, and debt service coverage of a rental property bought with a loan, and the profit and IRR when it is sold after a holding period.

- Page: https://www.acalculator.org/finance/rental-property-calculator
- JSON spec: https://www.acalculator.org/finance/rental-property-calculator.json
- Version: 44d7a9d3e5d9

## Default answer

Example with the default inputs (Purchase price $300,000.00, Down payment 25%, Interest rate 7%, Loan term (years) 30, Monthly rent $2,400.00, Vacancy 5%, Other monthly income $0.00, Property tax $3,600.00, Insurance $1,500.00, HOA dues $0.00, Maintenance and repairs $2,400.00, Management fee 0%, Other yearly costs $0.00, Closing costs $6,000.00, Repairs before renting $0.00, Rent growth a year 3%, Cost growth a year 3%, Value growth a year 3%, Years until you sell 10, Cost to sell 6%): A $300,000.00 rental renting for $2,400.00 a month has a monthly cash flow of $158.07, a cap rate of 6.62%, and a cash-on-cash return of 2.34%.

## Inputs

| Key | Label | Description |
| --- | --- | --- |
| price | Purchase price | The price of the rental property. |
| down | Down payment | The part of the price paid in cash; 100% for a cash purchase with no loan. |
| rate | Interest rate | The fixed yearly rate of the loan. The monthly rate is this ÷ 12. |
| years | Loan term (years) | The years the loan is repaid over. |
| rent | Monthly rent | The rent the property earns each month when it is let. |
| vacancy | Vacancy | The share of the year’s rent lost to empty months and unpaid rent. |
| other | Other monthly income | Parking, laundry, storage, or other income each month, which grows and is vacant like the rent. |
| tax | Property tax | The property tax, per year (or per month with the switch). |
| insurance | Insurance | The landlord insurance premium, per year (or per month with the switch). |
| hoa | HOA dues | Homeowners or condo association dues each month. |
| maintenance | Maintenance and repairs | The upkeep budget, per year (or per month with the switch). |
| management | Management fee | A property manager’s fee as a percent of the rent collected; 0 if you manage it yourself. |
| othercosts | Other yearly costs | Utilities you pay, landscaping, accounting, and other running costs each year. |
| closing | Closing costs | Fees paid in cash when you buy. |
| repairs | Repairs before renting | Cash spent to make the property ready to rent. |
| rentgrowth | Rent growth a year | How much the rent and other income rise each year. |
| costgrowth | Cost growth a year | How much the tax, insurance, dues, upkeep, and other costs rise each year. |
| appreciation | Value growth a year | How much the property’s value rises each year. |
| hold | Years until you sell | How many years you keep the property before selling it. |
| sellcost | Cost to sell | Agent commission and closing costs when you sell, as a percent of the sale price. |

## Outputs

| Key | Label | Description |
| --- | --- | --- |
| monthlyCashFlow | Monthly cash flow | The first year’s cash flow divided by 12: rent collected minus operating costs and loan payments. |
| capRate | Cap rate | The first year’s net operating income as a percent of the price. |
| cashOnCash | Cash-on-cash return | The first year’s cash flow as a percent of the cash you put in. |
| noi | Net operating income | The first year’s rent collected minus operating costs. |
| payment | Monthly loan payment | The level monthly principal and interest payment; $0 with no loan. |
| dscr | Debt service coverage | The first year’s net operating income divided by its loan payments; left out with no loan. |
| grm | Gross rent multiplier | The price divided by the first year’s rent and other income before vacancy. |
| invested | Cash you put in | The down payment plus closing costs and repairs. |
| saleValue | Sale price | The property value in the year you sell. |
| proceeds | Cash from the sale | The sale price minus the cost to sell and the loan balance still owed. |
| totalCashFlow | Total cash flow | All the yearly cash flows added up. |
| profit | Total profit | All the cash flow plus the cash from the sale, minus the cash you put in. |
| irr | Internal rate of return (IRR) | The yearly return that makes the cash you put in equal the cash flows and the sale, discounted. |

## Method

Each year: rent collected = 12 × (rent + other income) × (1 + rent growth)^(t−1) × (1 − vacancy); NOI = rent collected − operating costs; cash flow = NOI − loan payments. Cap rate = NOI₁ ÷ price; cash-on-cash = cash flow₁ ÷ cash in; profit = cash flows + sale proceeds − cash in; IRR solves NPV = 0.

## Assumptions

- Rent, other income, and costs grow once a year at their rates; the value grows at its rate each year.
- The loan has a fixed rate with level monthly payments; each year’s cash flow comes at the end of the year.
- The property is sold at the end of the last year for its grown value, less the cost to sell and the loan balance.
- Income tax, depreciation, and capital gains tax are not included.
- The defaults are examples, not market figures.

## Worked examples

1. price = $300,000.00, down = 25%, closing = $6,000.00, repairs = $0.00, rate = 7%, years = 30, rent = $2,400.00, other = $0.00, vacancy = 5%, tax = $3,600.00, insurance = $1,500.00, hoa = $0.00, maintenance = $2,400.00, management = 0%, othercosts = $0.00, rentgrowth = 3%, costgrowth = 3%, appreciation = 3%, hold = 10, sellcost = 6% gives monthlyCashFlow = $158.07, noi = $19,860.00, capRate = 6.62%, cashOnCash = 2.341769%, dscr = 1.105596, invested = $81,000.00, proceeds = $185,906.56, totalCashFlow = $48,040.97, profit = $152,947.53, irr = 12.394179%. Source: Office of the Comptroller of the Currency, Comptroller’s Handbook, Commercial Real Estate Lending (net operating income and capitalization rate). https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-handbook/files/commercial-real-estate-lending/index-commercial-real-estate-lending.html.
2. price = $200,000.00, down = 100%, closing = $4,000.00, repairs = $6,000.00, rate = 7%, years = 30, rent = $1,800.00, other = $0.00, vacancy = 0%, tax = $2,400.00, insurance = $1,200.00, hoa = $0.00, maintenance = $1,800.00, management = 10%, othercosts = $0.00, rentgrowth = 0%, costgrowth = 0%, appreciation = 0%, hold = 5, sellcost = 5% gives monthlyCashFlow = $1,170.00, noi = $14,040.00, capRate = 7.02%, cashOnCash = 6.685714%, grm = 9.259259, proceeds = $190,000.00, profit = $50,200.00, irr = 4.960794%. Source: Office of the Comptroller of the Currency, Comptroller’s Handbook, Commercial Real Estate Lending (net operating income and capitalization rate). https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-handbook/files/commercial-real-estate-lending/index-commercial-real-estate-lending.html.
3. price = $250,000.00, down = 20%, closing = $5,000.00, repairs = $0.00, rate = 6%, years = 5, rent = $2,000.00, other = $100.00, vacancy = 8%, tax = $3,000.00, insurance = $1,200.00, hoa = $50.00, maintenance = $2,000.00, management = 8%, othercosts = $500.00, rentgrowth = 2%, costgrowth = 3%, appreciation = 4%, hold = 8, sellcost = 7% gives monthlyCashFlow = -$2,697.45, noi = $14,029.28, dscr = 0.302363, totalCashFlow = -$113,839.12, proceeds = $318,192.30, profit = $149,353.18, irr = 9.551176%. Source: Office of the Comptroller of the Currency, Comptroller’s Handbook, Commercial Real Estate Lending (net operating income and capitalization rate). https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-handbook/files/commercial-real-estate-lending/index-commercial-real-estate-lending.html.

## FAQ

### How do I calculate cash flow on a rental property?

Take the rent you collect after vacancy, subtract the operating costs (tax, insurance, dues, upkeep, management), and subtract the loan payments. In the example, $27,360 of rent collected less $7,500 of costs is $19,860 of net operating income, and less $17,963 of loan payments leaves $1,897 a year, $158 a month.

### What is a good cap rate?

The cap rate is the net operating income divided by the price, so it ignores the loan. It depends on the market and the property’s risk; many residential rentals fall between about 4% and 10%. Compare it with similar properties nearby rather than a fixed number.

### What is cash-on-cash return?

The first year’s cash flow divided by the cash you put in (down payment, closing costs, and repairs). It shows the yearly return on your own money. The example earns $1,897 on $81,000, 2.34%.

### What does the IRR include?

Everything: the cash you put in, every year’s cash flow, and the cash from the sale. The IRR is the yearly rate that makes them add up to zero once discounted. The example returns 12.39% a year over 10 years, mostly from the rise in value and the loan paid down.

### Why is my cash flow negative when the profit is positive?

Loan payments can take more than the rent brings in, especially with a short loan, while the value rises and the loan is paid down. The profit counts the sale; the cash flow does not. A negative cash flow means you pay in each month.

### Does the calculator include taxes on rental income?

No. Income tax, depreciation, and capital gains tax depend on your situation. The results are before tax.

### Are the default figures typical?

They are examples, not market data. Use real quotes for the price, rate, rent, tax, and insurance.

## Sources

- Office of the Comptroller of the Currency, Comptroller’s Handbook, Commercial Real Estate Lending (net operating income, capitalization rate, and debt service coverage). https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-handbook/files/commercial-real-estate-lending/index-commercial-real-estate-lending.html
- Internal rate of return and net present value: S. A. Broverman, Mathematics of Investment and Credit, chapter 5.
- Amortized loan payment and outstanding balance formulas: S. A. Broverman, Mathematics of Investment and Credit, chapters 3 and 5.